Rural Equities eyes investment outside of NZ rural property, citing 'uncertain' outlook

Wednesday 8th November 2017

Rural Equities, the farming group majority-owned by the Cushing family, is eyeing investments outside New Zealand rural property where it sees an “uncertain” future.

The Hastings-based company, which owns 22 farms in New Zealand, told shareholders in its annual report published this week that directors decided to consider new long-term investment opportunities in other asset classes and potentially other jurisdictions to provide enhanced returns and portfolio diversification.

Rural Equities was spun off from Williams & Kettle in 2004 and its holdings span a mix of sheep and beef, dairy, deer and arable farms spread throughout New Zealand from Northern Waikato to Southland with 13 properties in the South Island and nine in the North Island.

The company cited several factors weighing on its investment in New Zealand rural property, including that the Ruataniwha Water Storage Scheme wouldn’t proceed as previously planned, a potential ban on foreigners buying farmland in New Zealand, the risk of a water tax on irrigation in the future, and ever-increasing environmental standards and nutrient leaching limits that it said over time could lead to a material reduction in land values.

“I think one would be a mug not to consider other investments in a landscape like that,” said executive chairman David Cushing. “New Zealand rural property will be the core of Rural Equities but we may look to consider other investments.”

Cushing said the climate for agriculture in New Zealand was “uncertain”, noting the Green Party had “some pretty interesting views on agriculture” and it was too early to tell what policies could be developed.

“It could be okay. I’m not saying it should be bad,” he said. “I think it’s uncertain and most people will just be cautious.”

Rural Equities has entered into conditional contracts to sell a sheep and beef farm and a cropping farm, worth a total of $13.1 million.

Cushing said there is no plan at this stage to divest more properties.

Should the sales go through, the funds would be used initially to reduce debt, he said.

The company had assets of $205.9 million as at June 30. Its bank loans more than halved over the past year to $12.4 million, from $26.7 million.

Cushing was unable to say how much may be invested outside of New Zealand rural property.

“It’s something we are considering. We are looking at a few opportunities.

“We have obviously reviewed the opportunities that we have got in front of us and there aren’t a huge amount in the New Zealand rural property space for us that we can see and we’ve decided to look further afield and just see if we can come up with long-term investments that we think could match or outperform rural property in New Zealand and also potentially to diversify the company’s assets just a little bit because obviously all our eggs are in one basket at the moment.”

No decisions had yet been made, he said.

Investment in Australian agriculture was a possibility, he said, noting the New Zealand Superannuation Fund had invested in Australian beef stud Palgrove.

“I think the agricultural climate over there is reasonably positive,” he said.

Cushing is a director of ASX-listed agricultural company Webster, which has interests in Australian cotton and walnut farming and water rights. Rural Equities’ stake in Webster increased in value by $1.63 million over the past year.

Rural Equities could also look at investment in other agricultural businesses outside of rural property such as primary processors, he said.

“I wouldn’t say we are aggressive and we are not desperate, we are just considering opportunities as we see them,” he said.

He noted the low global interest rate environment meant assets were relatively fully priced at the moment.

“It’s not easy to find a bargain in the current environment so we are being cautious,” he said.

Rural Equities shares last traded on the USX market at $4.71, valuing the company at $157 million.

(BusinessDesk)

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